As you may have heard, NewEgg has stopped collecting sales tax from New York customers. Unlike Amazon, which has initiated litigation challenging New York’s tax policies, or Overstock.com, which has cut New York affiliate programs in order to avoid the tax, NewEgg has taken a new path. Some insiders suggest it may also be “restructuring†its affiliate programs as well, but it seems likely the company also expects enforcement to be too costly for the New York state government. Because NewEgg is a California company that does not have a physical location in New York, any kind of enforcement will likely involve extensive legal challenges before the courts can even determine where the case should be tried. Then, there is an extremely strong Constitutional argument that the New York law cannot extend to businesses that do not have a physical nexus in the state. NewEgg will probably also argue that its affiliates are structured in a way that has never subjected the company to the law.
All of this litigation would be extremely costly. The New York state government only expected to collect $50 million a year in total, and now companies are ditching their New York affiliates to avoid the tax, so the revenue generating potential of this tax is pretty low. The amount the state could collect from NewEgg if it wins the challenge would, of course, only be a fraction of that amount. Plus, there is evidence politicians are feeling pressure from constituents, including customers and advertising agencies, to suspend this tax. The New York State Senate has already passed a bill to repeal it. All this said, NewEgg might be taking a risk, but with extremely high consumer ratings and a steady stream of cash, it can probably afford it.
Tomi Turner works in ERA’s government affairs department.
As we’ve discussed before when asking you to book your tickets to our eRetailer Summit in Miami, always check with SNL’s resident travel expert Judy Grimes for tips first.
